GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM
C3RIGGS UNIVERSITY
CAPSTONE PROJECT REPORT
DEVELOPINGFORMULATION OF BUSINESS STRATEGIES FOR SONG DA 7 JOINT STOCK COMPANY IN THE PERIOD OF 2012 - 2017
Group 4 - GaMBA01.X0710 Do Manh Tuan Nguyen Truong Bac Tran Viet Phong Le Thi Thu Trang
Ha Noi, November 2011
Trang 2
SONG DA HOLDINGS
SONG DA 7 JOINT STOCK COMPANY
Dated December 8" ,2011
To whom it may concern
Subject: Comments of SONG DA 7 Joint Stock Company on
tO
the project of Group 4— GaMBA01.X0710 — Griggs University
The students have closely followed up the current situation of the organization structure and the business activities of SONG DA 7 Joint Stock Company to implement the project In addition, they have also discuss, research about strategy planning followed up leaders’ idea
The content of the “Capstone project report Developing business strategies for SONG DA 7 joint stock company in the period of 2012-2017” project mentions the goals and strategy that SONG DA 7 JSC is trying to reach and has high feasibility The content of the project is excellent Nguyen Thong Hoa Chairman
SONG DA 7 JOINT STOCK COMPANY
Add: Village It Ong - District Muong La — Province Son La Email: info@songda7.com.vn
Trang 3LIST OF ABBREVIATION
HUD Housing and Urban Development Holdings | ~~ SUDICO Song Da urban & industrial zone investment and
development Joint Stock Corporation
VINACONEX | Vietnam construction and Import — Export Joint Stock
Corporation
EFE External Factor Evaluation
| «FE Internal Factor Evaluation
IE Internal & External
| PEST Policy - Economic - Social - Technological
| §D7 Song Da 7 JSC
SWOT strengths - weaknesses - opportunities - threats
WTO World Trade Organization
Table 2.1: Workforce situation in the Company by the end of June 30,2011 LIST OF TABLES
Table 2.2: Impact evaluation of opportunities for Song Da 7
Table 2.3: Impact evaluation of Threats for SD 7
Table 2.4: Summary of opportunities and threats for SD 7 Table 2.5: External Factor Evaluation Matrix (EFE)
Table 2.6: Production and business results of SD7 from 2008 —the 2nd quarter,
2011
Table 2.7: List of new machines
Table 2.8: Cost Structure of the Company in comparison with other enterprises in
the same industry in 2010
Table 2.9: Company’s internal factor evaluation matrix
Table 2.10 : IE matrix
Trang 4Table 3.1 SWOT analysis of Song Da 7 Joint Stock Company Table 3.2: GREAT model to choose the optimal strategy for SD7 Table 3.3: Table 3.3: Implementation plan for cost leadership strategy Table 3.4: Statistics of expenses for all the project
LIST OF FIGURES AND CHART Figure 1.1: The process of strategic management
Figure 1.2 : Michael Porter’s Five Force Model
Figure 1.3: Diagram of main business activities and supporting activities Figure 2.1: PEST model
Figure 2.2: Michael Porter’s Five Force Model
Chart 2.1: Economic growth in the world, U.S, Europe, Japan, some developing countries in Asia and Vietnam
Trang 5ACKNOWLEDGEMENT
First of all, the Group No 4 - GaMBA0I1.X0710 would like to express our sincere thanks for the Master of Business Administration Program, the Affiliate Programs between Griggs University, USA and Center for Education Technology and Career Development, Vietnam University Hanoi for organize MBA course in Vietnam and facilitating our Capstone Project Report
Secondly, we would like to express our sincere thanks to the Leaders and staffs of Song Da 7 Joint Stock Company, who have fully supported our team in providing valuable input information for this Capstone Project Report
Last but not least, let our thanks go to our families whose encouragement has helped us complete the course without having any difficulties
Trang 6INTRODUCTION
1 Research topic: DEVELOPING BUSINESS STRATEGIES FOR SONG DA 7 JOINT STOCK COMPANY IN THE PERIOD OF 2012 - 2017
2 Reason for selecting the topic:
To developing countries, construction industry is always considered as one of the major industries, playing an important role in the economic and _ social development, especially during the period of national industrialization and
modernization
In the market economy, the competition rules exist in every industry and field of business The construction industry is not an exception, therefore each company
has to find its own path way and develop specific business strategies in order to
survive and grow sustainably
Song Da 7 Joint Stock Company was formerly Song Da 7 company, belonging to
Song Da Corporation which was established in August 1976
The traditional field of operation at Song Da 7 is construction material
production In the era of industrialization and modernization, the company
expands to and develops new fields such as construction investment, management, operating small and medium hydro-electric power plants, financial
investment in other companies, investment in city infrastructure projects and
natural mineral exploitation projects
Song Da 7 Joint Stock Company was established according to the Decision No
2335/QD-BXD of December 19th 2005, by the Minister of Ministry of Construction, transforming Song Da 7 Company into Song Da 7 Joint Stock
Company The company was issued the first business registration certificate
Trang 7On January 27 2006, the Company started listing and trading its stocks on Hanoi stock exchange with the charter capital of 90 billion VND
Facing the changes in the world and national economy, as a company operating in the fields of investment, real estate service, civilian construction, industry construction, Song Da 7 Joint Stock Company realizes it is necessary to build up
its business strategy to develop the whole operation activities, in order to compete and gain market share over other domestic and foreign companies,
reaching the growth objective of 2012 — 2017 period, and creating the basis for the sustainable growth in the years to come This is the reason why the group chooses the topic of “Developing business strategies for Song Da 7 Joint Stock
Company in the period of 2012 -2017”
3 Purposes of the research
- Review fundamental theories of strategy and strategic management
- Apply some useful models to analyze the process of formulating and selecting strategies
- Analyze the real situation in which Song Da 7 Joint Stock Company has been implementing its strategies
- Analyze factors of the external and internal environment which impact on the company’s strategies
- Present proposals and solutions aiming at improving process of developing
production and business strategies for Song Da 7 Joint Stock Company in
the current conditions together with planning implementation schedule for
the selected strategies from 2012 to 2017 4 Objective, scale and methodology
- Objective and scale: The research focuses on current strategic management
activities of Song Da 7 Joint Stock Company and provides some solutions
for the period of 2012 - 2017
- Methodology: The research uses two kinds of information sources: primary
and secondary information The secondary information comes from
various sources However, a major percentage of the information is from
Trang 8-6-reports on current business situation provided by Song Da 7 Joint Stock Company Besides, we have also gathered from many opened sources such
as internet and books
5 Structure of the research
Introduction
Chapter I: Literature review of strategy and strategic management
Chapter II: Analyzing current situation and formulating development strategies for Song Da 7 Joint Stock Company during the period of 2012 — 2017
Chapter III: Solutions for strategy development and implementation of Song Da 7 Joint Stock Company
Trang 9CHAPTER 1
LITERATURE REVIEW OF STRATEGY AND STRATEGIC MANAGEMENT
1.1 Overview of strategy and strategic management 1.1.1 Definitions of strategy and strategic management: Definitions of strategy:
1 Strategy is the process of defining basic long term objectives of a company, selecting method or action plan and allocating the necessary resources to achieve those objectives (Alfred Chander)
2 Strategy is a consistent, comprehensive, cooperative plan designed to ensure that all the main objectives of the company will be achieved (William J Glueck)
3 Michael L Porter, the founder of competitive theory states that:
e Strategy is the creation of a valuable and unique position including differentiated activities
e Strategy is about selecting and trading off in business
e Strategy is creating the appropriateness among all the company’s activities
Therefore, firstly strategy relates to the business objectives Secondly, strategy is the way to execute the actions and decisions which are closely related and to select the method to cooperate those actions and decisions A company’s strategy has to utilize the main strengths (resources and capability) and anticipate cpportunities and threats from the external environment
The concept of strategic management:
1 Strategic management is the process of researching, analyzing the external and internal environment of a company in the current and future period; defining the company’s objectives; planning, implementing and evaluating the strategy to effectively utilize the resources and reach the desired goals 2 The process of strategic management:
Trang 10Strategy Control Evaluation and Adiustment
Figures 1.1: The process of strategic management
1.1.2 The role and importance of strategy and strategic management:
Strategy helps the organization have a flair for and be more dynamic to the forecasts and changes of the market, therefore making right decisions and control its operation, improve the competitive capability of the business and gradually ensure the position of the company in the market economy
Michael Porter states in his book “Competitive Strategy” that “Competitive strategy is within the relationship between the Company and its market”
Because of its importance, the company has to create its own long term strategy, this is the requirement to help the company sustain and develop in the
future However, the market environment always change, the business resource
also changes after periods Therefore, a company’s strategy has to be flexible, suitably changing to the reality to ensure the existence and development
Companies may choose its strategy basing on the information analysis method, using factors in the following order:
Trang 112/ Product diversity 3/ Product life cycle 4/ Competitor’s strategy
5⁄/ Market demand
1.2 Strategic management contents:
Strategy is created based on the company’s mission, which is the
foundation for identifying objectives and what to do for customers and other stakeholders
Based on this mission, the management will decide the objectives These objectives are visible manifestation for the organizational mission and are used to
plan for actions and process evaluation These objectives are guided by the reality knowledge of the external marketing or operation environment and internal resource of the business Normally, the strategic planning starts at researching and analyzing, besides implementing a process from which management
understand the priority concerns that the company has to solve in order to
sustainably succeed
Implementing strategy involves executing tasks following the entire business process Both the manager and supervisor of all business levels have to concentrate on implementing the strategy, because even the best strategy will turn
out meaningless if it is not conducted properly
1.2.1 Defining the business’s vision and mission:
Defining the vision is to identify the position that the company wants to
achieve The claim of vision will outline the future of the company when achieving its own objectives and goals Visio statements have to define the final ends of the business To succeed, Davidson has identified 6 main factors that a
vision should have:
* Proposing the future direction * Focusing on customer’s benefits
* Realistic
Trang 12-10-* Motivating
* Imperative to be fully communicated * Always be controlled and evaluated
A mission statement identifies the values and rules governing the business and is an essential part in the business strategic planning The company’s mission is the reason for its existence in the market, what products or services it brings to customers and community The decision in strategic planning has to harmonize with the mission statement
1.2.2 External environment analysis: 1.2.2.1 Analysis of macro environment:
PEST model focuses on researching the factors from the external environment on the company Those factors include:
* Policy — Legal factors:
These are the factors affecting all the industry within a country The political, legal factors can threaten the existence and development of any business When operating in an administrated area, companies will be obliged to obey the legal policies of that area
+ Stability: which political institution has high level of stability will create a positive environment for the business operation and vice versa
+ The related Laws: Investment Law, Enterprise Law, Labor Law,
Antitrust Law, Anti Dumping Law, etc
+ Policies: The government’s policies will influence companies, creating opportunities or challenges to the business Examples are policies of commerce and trade, industry development, economy development, competition adjustment, consumer right protection, etc
* Economic factors:
Trang 13Normally companies will base on the economic factors to decide which industry or area to invest into
+ The economic situation: Any economy has its cycle, in each specific economic cycle; companies will have suitable decision for themselves
+ Factors influencing the economy: interest rate, inflation
+ Government policies: The base salary policy, economic development strategies of the government, preferential policies for industries such as tax
reduction, subsidy, etc
+ The economic prospect in the future: the growth rate, GDP growth rate, GDP over capital ratio, etc
* Social - Cultural factors:
Every country pr geographic area has distinguished cultural values and social
factors These factors are characteristics of consumers in those areas
Social characteristics also have attention of companies when researching the market Social factors will segment the community into different group of
customers; each group has specific psychological, income, etc characteristics:
+ Average life expectancy, health condition, nutrition level, eating habit
+ Average income, allocation of income
+ Lifestyles, education levels, perspectives of aesthetics, attitudes towards life
+ Living standards * Technological factors:
An enormous number of new technologies have been released and applied into products and services, especially in the technology industry and modern media industry
+ Government’s and companies’ investment into Research and Development: The combination of companies and the Government in order to
research the new technology, materials, etc will positively affect the economy + The rate and cycle of the technology, the ratio of outdated technology
Trang 14-12-+ The influence of information technology and the Internet to the business Operation
Currently, the P.E.S.T model has been expanded into S.T.E.E.P.L.E Matrix (Social/demographic, Technological, Economics, Environmental, Policy, Legal, Ethical) and is gradually completed as an indispensable standard when researching the external environment of the business
1.2.2.2 Analysis of the industry environment
Analysis of the industry follows Michael Porter’s 5 force model or 5 competitive forces, they are
Trang 15-13-1.2.3 Analysis of the internal environment
The internal situation of the business is often evaluated based on the following functions: Finance; Human Resource, Management, Organizational Structure, Marketing, research and development, Information technology
Figures 1.3 Diagram of main business activities and supporting activities ⁄ z | Firm Intractriict ire ! i BEL E Givi & Terhnolenv CON \0lC0y | Procurement
Inbound ; Outbound Marketing & tom ae
Logists Operations Logistics Sales Seviœ S
À———————— RR*RY 1WT5§—————————7
The internal analysis of the company will allow recognizing the strengths
(S) and weaknesses (W) of the business Based on them, the selected business
strategies have to maximize the company’s strengths and overcome weaknesses Similar to the technique of external environment analysis, in order to quantify the internal situation of business, we use “Internal factor evaluation matrix” (IFE)
1.3 Strategy formulation, selection and implementation
There are three stages to form the business strategy and each stage utilizes different tools
Stage 1: Input Stage (Gathering and systematizing information)
This stage summarizes main information collected and systematizes them to form the business strategy This stage uses three tools: EFE Matrix, Competitive Profile Matrix and IFE Matrix
Stage 2: Matching Stage
This stage selects, arranges, and combines the environment’s external factors and
internal factors to propose a feasible strategy This stage will use the matrix tools
Trang 16-14-such as: Matrix of Strength — Weakness, Opportunity — Threats (SWOT) Strategic Position and Action Evaluation Matrix and Grand Strategy Matrix Stage 3: Decision stage
This stage utilizes the only tool of quantitative strategic planning matrix (QSPM) QSPM uses the information from the first stage; objectively evaluates the strategies to be selected in the second stage to decide which business strategy is optimal to the business
1.3.1 Input stage (Information gathering and systematizing stage) 1.3.1.1 EFE Matrix
EFE Matrix is created following 5 steps:
- Step 1: List the factors that play decisive role in the industry that the business is operating in, including both opportunities and threats
- Strep 2: Evaluate the weight of each factor based on the scale of 0.0 to 1.0 (increasing level of importance) with the total weights of 1 This weight depends of the industry that the business is operating in
- Step 3: Rate from 1 to 4 for each factor, the rating reflects the reaction level of the business to each factor Rate of 4 indicates positive reaction Rate of 3 is above average reaction Rating of 2 is average reaction and rating of 1 shows low level of reaction
- Step 4: Decide the weighted score for each factor (by multiplying the weight in step | with the rate in step 2)
- Step 5: Calculate the total weighted score of the business by summing up the scores in step 3
Trang 171.3.1.2 Competitive image Matrix
This matrix realizes the major competitors of the business It is the expansion of EFE matrix in which the weight of each factor, each factor’s rating and total weighted scores have similar meaning
Competitive image matrix is different from EFE matrix in the following points: Several internal factors that have decisive weights are also included to compare The total score to evaluate different competitors will be compared with the chosen model business
1.3.1.3 [FE Matrix
The formation of IFE Matrix also follows 5 steps
- List the factors that have important effects on the business
- Evaluate the weight of each factor on the scale from 0.0 to 1.0 (increasing level of importance) with the total weights from all factors are 1, this weight base on the importance of the factors to the business, not distinguishing whether this factor is the company’s strength or weakness
- Rate from 1 to 4 for each factor and the rating indicates the internal characteristics of the company toward that factor Rating of 1 is the major weakness, rating of 2 is the minor weakness, rating of 3 is the minor strength, and rating of 4 is the major strength
- Identify the weighted score for each factor (by multiplying the weight at step 2 and the rating at step 3)
- Identify the total weighted score for the company (by summing up the weighted scores in step 4)
The highest total weighted score of 4 and lowest is 1 The average is 2.5 The weighted score lower than 2.5 indicate that the business is internally weak, while the score above 2.5 means the internal strength
Trang 18-16-1.3.2 Matching stage
1.3.2.1 SWOT matrix
SWOT Matrix is a tool combining the strengths (S), weaknesses (W),
opportunities (O) and threats (T) to form 4 types of strategies:
- SO Strategy: Using the internal strengths to utilize the external opportunities - WO Strategy: Taking advantage of the external opportunities to overcome the internal weaknesses
- ST Strategy: Using the strengths of the business to avoid or reduce threats from the external environment
- WT Strategy: This is the defensive strategy to reduce the internal weaknesses and external threats
A typical SWOT Matrix can be illustrated as bellowed: The SWOT Matrix S W List of Strengths List of Weaknesses O List of S-O Strategies W-O Strategies Opportunities T S-T Strategies W-T Strategies List of threats 1.3.2.2 SPACE Matrix
SPACE Matrix include 2 internal factors: Financial strength (FS) and competitive advantage (CA), and 2 external factors: Environmental stability (ES) and Industry strength (IS)
SPACE matrix is formed through the following steps:
- Select a group of variables representing FS, CA, ES, and IS
Trang 19- Find the average score for FS, IS, ES and CA - Plot values of average score for each dimension
- Add up the score on horizontal axis and mark the result Add the score of vertical axis and mark the result of this new intersection
- Draw a vector from the original point to the new point
The SPACE Matrix Conservative FS Aggressive 6 5 : \ 4 ⁄ 2 1 1 2 3 4 5 6 IS CA -6 -5 -4 -3 -2 -I “1 -2 -3 -4 -5 -6 ES Defensive Competitive SPACE Matrix
if the vector lies in Aggressive quarter: the company is in the best position to utilize its internal strengths Strategies to be used include: Market entering, market expansion, product development, forward integration, backward integration, and horizontal integration They can be applied depending on the specific situation at each company
If the vector lies in Conservative quarter: the company should operate based on its basic capability rather than challenging itself Strategies to be used include: market penetration and development, product development and concentric diversification
If the vector lies in Defensive quarter: the company should focus on improving
Trang 20-18-the weaknesses and avoid external threats Some defensive strategies are: retrenchment, liquidation and concentric diversification
If the vector lies in the Competitive quarter: competitive strategies could be forward or backward integration, horizontal integration, market penetration and development, product development and joint venture
1.3.2.3 Grand Strategy Matrix
The matrix includes: horizontal axis represents the competitive position of the business on its market (strong or weak) and the vertical axis represents the market growth (quick or slow) The appropriate strategies are listed in each corner below: Rapid Quarter I Quarter I
1 Market development 1 Market development 2 Market penetration 2 Market penetration
3 Product development 3 Product development
4 Horizontal integration 4 Forward integration
5 Divestiture 5 Backward integration
Quarter III Quarter IV
1 Retrenchment 1 Related diversification
2 Related diversification 2 Horizontal diversification
3 Horizontal integration 3 Integrated diversification
4 Integrated diversification 4 Joint ventures Slow
Trang 211.3.3 Decision stage
The QSPM uses information gathered from 3 matrixes in the first stage
(information gathering and systematizing stage) and 3 matrixes in the second
stage (Combining stage) then objectively evaluate alternative business strategies
The strategies selected into QSPM are not all the findings in the second stage
In order to form QSPM Matrix, 6 steps need to be followed:
- Step 1: List the factors of S, W, O, T taken from EFE, IFE matrix - Step 2: Rating the above factors according to EFE, IFE matrix
- Step 3: Examine the matrixes in the second stage and identify the strategic alternatives to be reviewed
- Step 4: Identify the Attractiveness score (AS) on each factor: the score is from
1 to 4, with 1 means unattractive, 2 means low level of attractiveness, 3 means
relatively attractive, 4 means very attractive
- Step 5: Calculate the Total attractiveness score (TAS) on each row by multiplying the rates in step 2 with the score of attractiveness in step 4
- Step 6: Calculate the Sum Total Attractiveness Score of each strategy
The most attractive strategy is the one with the highest total score in Step 6
Obviously, during the process of operations, companies have to identify their
own annual objectives and long term goals Business strategy is the path and
steps to reach those objectives 1.4 CONCLUSION:
Chapter | includes general concepts of strategy and strategic management, which is the foundation to formulate, select and implement business strategy This is the basic theory needed to research the situation at Song Da 7 Joint Stock Company,
Trang 22CHAPTER II
ANALYZING THE BUSINESS DEVELOPMENT OF SONG DA 7 JOINT STOCK COMPANY 2.1 GENERAL INFORMATION ABOUT SONG DA 7 JSC
2.1 1 History and development:
Song Da 7 was established in August, 1976 (formerly known as Concrete Crushing Enterprise) - an alliance Company of Song Da Corporation In 1993, the company changed its name to Building Materials Company In order to match
the new mission and requirements for the diversification of industries, the company was renamed Song Da 7 Company under the decision of the Ministry of
Construction in April 1996 In March 1997, Enterprise No 802, Mechanical repair of Song Da 8 Company and Enterprises 601 of Song Da 6 Company were merged into Song Da 7 Company By the end of 2000, Song Da 7 Company had
05 units (02 branches and 03 affiliated enterprises) with over 1000 employees
Till July 31, 2005, the company had 07 units and 02 affiliated teams
On December 19, 2005, Song Da 7 Company was changed into Song Da 7
Joint Stock Company according to the Decision issued by the Minister of the
Ministry of Construction The company was granted the first business registration
certificate No 24.03 000,081 dated 29" December 2005 by Son La Department
of Planning and Investment and officially operated on 1“ January 2006
On October 3rd 2006, the Company was granted the second amended
registration certificate by Son La Department of Planning and Investment Province after completing the capital contribution with the total capital of VND90 billion
On 27th December 2006, the Company’s stock was formally listed and
traded on HOSE with the charter capital of VND 90 billion
2.1.2 Trading field:
- Investing and trading services about housing, urban areas
Trang 23- Construction of civil, industrial, transportation, irrigation, post and
telecommunications works, underground, urban infrastructure and
industrial zones, public water supply works, SOOkV transmission line and substation works
- Providing interior and exterior design for works, creating landscape architecture for works
2.1.3 Organizational Structure:
Organizational structure of the Company is based on the structure of Joint Stock Company as seen in the following diagram: GENERAL ASSEMBLY OF SHAREHOLDERS Ỳ BOARD OI oe MANAGEMENT CONTROL BOARD GENERAL DIRECTOR Y y Y DEPUTY GENERAL DIRECTOR DEPUTY GENERAL DIRECTOR TECHNICAL-CONSTRUCTION ECONOMY-PLANING PROJECT MANAGEMENT CONSTRUCTIO} BOARDS INSTALLMENT TE (Source: Song Da 7 JSC)
2.1.4 Labor structure of the Company
The quality of human resources is one of important factors to determine the development of the company Therefore, the company always aims to build a professional staff system in the development strategies By June 30, 2011, total personnel of the company are 236 people
Trang 24-22-Table 2.1: Workforce situation in the Company by the end of June 30,2011
Factors Number
(person)
Number of personnel 236
Average salary (VND/person/month) 4,8 million
Based on Qualification status 236
e University level or higher 102
e College and Intermediate level 62 e = Skillful workers 12 Based on the contract period 236 e Undefined g7 e Detined 139 (Source: Song Da 7 JSC)
The company‘s workforce focused on management staff The reason why the company does not have unskilled workers is due to the nature of business as
the builder of works, these works are located in different places, therefore, at
each places, the company will hire local unskilled workers to minimize the labor
cost
2.2, EXTERNAL ENVIRONMENT ANALYSIS
Trang 252.2.1.1 Political and legal factors (P):
Changes in Law always have strong influences on production and business activities for economic entities The State management performed by the legal system to avoid administrative interference in the enterprises and markets’ activities as well as to stabilize politics, the labor force and directions for development in recent years and coming years will open opportunities to develop the national economy in general and enterprises in the construction sector in particular
Besides, Vietnam has been the trend of international integration; it is also an attractive destination for foreign investors and large international corporations However, in addition to the benefits, Vietnam enterprises will be suffered from huge competitive pressures, tariff barriers and the State’s incentives will no longer force businesses to comply with the provisions of the International Law Enterprises must improve their management skill as well as increase their investments in equipment and technology to create diversified products with higher quality and cheaper price This is also a challenge to construction and real estate industry in general and Song Da 7 JSC in particular
2.2.1.2 Economic factors (E)
Despite slow recovery of the world economy after the crisis, Vietnam’s economy got out of the recession early and achieved a relatively high growth rate Vietnam's economy ended 2010 with more highlights As reported by the General Statistics Office of Vietnam, the country’s GDP in 2010 reached 6.78%
Trang 26-24-Chart 2.1: Economic growth in the world, U.S, Europe, Japan, some developing
countries in Asia and Vietnam 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% ¬ —— -2.00% 1322- 2002 2003 2004 2005 2006 2007 200% 20 2010 201] -4.00% -6.00%| + -8.00% a Ị | Ị | fs | | _—VWorld —— America Euro zone Japan — Developing Asia ——Vietmam |
(Source: World Economic Outlook, IMF, Oct 2010)
This is a high growth rate compared with 6.23% in 2008 and much higher than
the rate of 5.32% in 2009 Also in 2010, the industrial and construction sector
Trang 27Chart 2.2: GDP growth rate and economic sectors during 2000- 2010 12.00% 2— @-— ©-— g 10.00%| @—® -* —e —® 8.00% 6.00% 4.00% 2.00% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: The General Statistics Office of Vietnam
Vietnam has been more and more developing; people's life has been continuously improved As a result, investments in construction are also increasing All of these factors are the main advantages to promote business projects of the company
2.2.1.3 Social factors (S)
Vietnam has a favorable geographical position to implement the opening and integration strategies, this is also an advantage to enhance economic exchange and share experience with other countries in the region and the world
Besides, nowadays, the customer becomes wiser and more understanding in choosing the products, they are willing to choose the best products with perfect services This is an opportunity for large businesses; however, this is also a challenge for small businesses
Accordingly, economic restructuring process in the region and in the world has had a profound effect in Vietnam From that, the opportunities and challenges in the coming period are as follows:
Vietnam enterprises are no longer being discriminated in international trade Vietnam becomes an attractive market for investment and technology
Trang 28-transfer, promoting comparative advantages such as cheap labor, abundant resources and good investment environment In particular, Vietnam has many opportunities to fight to receive the preferential treatment for developing countries in order to improve the international position and ensure the national rights It is required that the government should accelerate economic restructuring process, administrative reform and complete legal system to improve competitiveness
Besides, Vietnam also faces with many challenges, such as Vietnam's economy is still in the transition period and it is still at the place of departure with low competitiveness At the same time, cutting taxes for some items greatly affects the Government's revenue Therefore, Vietnam enterprises must have a careful preparation if they don’t want to be removed from the competition rules of the global economy
According to the Prime Minister’s decision No 76/2004/QD-TTg dated 6” May 2004 approving the housing development orientation till 2020, Vietnam is striving to achieve the average per-capita flooring space area of 15 m2 by 2010 and 20 m2 by 2020, and to achieve the average per-head flooring space of 14 m2 by 2010 and 18 m2 by 2020 in the countryside
Trang 29in January, 2011 in Hanoi, from now to 2015, the Ministry sets a target of raising the housing area to 25 square meters per capital by 2015 If this target is achieved, housing area per capital in urban areas reaches 21,5 square meters of floor space, it will need more 2.0955 million square meters, excluding the demand for the development of industrial zones, trade centers It can be seen that the market for construction is very huge in the long run Head of the Department of Housing and Property Market Management of the Construction Ministry said: from now to 2020, the strategy focuses on the following objectives: meeting
basic needs is to have suitable accommodation with the demand of the people and
gradually improve the quality of houses, creating incentives for urban and rural sustainable development oriented industrialization — modernization
2.2.1.4 Technology factors (T)
Impacts of the technological revolutions as well as the trends in expanding the influence of Construction Corporations in the region and in the world are
huge challenges for businesses in Vietnam The demand for technological innovation in construction techniques, new materials, and structural analysis is
inevitable because it helps businesses reduce costs and construction time,
ensuring the construction schedule which is one of the key competitive factors in the current period On the other hand, in information society as today, customers are easy to access to information about new technologies and products; therefore, their requirements will be higher, this is also a challenge with the business
Moreover, Vietnam’s participation in the international economic
organizations such as WTO, APTA, etc has great influences on Vietnam enterprises in general and Song Da 7 in particular In the context of globalization and international integration, it will be much easier for the company to make access to the achievements of Science & Technology in the world as well as
receive the appropriate technology to improve technology level and enhance the cooperation and investment expansion
Trang 30-According to the general development strategy of Song Da Corporation, the development of Song Da 7 is placed in the general direction of integration To improve the operational effectiveness, the problems such as the development of satellite system, the hiring of local workers or working at the site will be will be applied in a flexible way 2.2.2 Industry analysis: Figure 2.1: M Porter's five forces model Potential Entrants Buyers Barganing Threat of New Power of Buyers Entrants Industry Competitors Rivairy Among Existing Firms Substitutes Suppliers foe ad Supliers (Source: http://Saga.com) 2.2.2.1 Potential entrants:
According to statistics, the urbanization rate was about 30% in 2009 It is
forecasted that, by 2015, the urban population will be about 35 million people; the urbanization rate is 38% with the urban construction demand about 335.000ha In 2020, the urban population is estimated 44 million people, the
urbanization rate is 45% with the urban construction demand about 400,000 ha
and by 2025, the urban population is about 52 million people, the urbanization
rate is 50% with the urban construction demand about 450,000 ha
The urbanization speed in Vietnam is still very slow compared to the requirements of economic development, in 2010, the urban population rate accounts for about 35% and new urban construction activities just start Therefore, the development potentials in this sector are large It is expected that the construction company will be set up more and more, or businesses in other industries will redirect investment to meet booming construction demand
Trang 31-29-Besides, the process of international economic integration offers opportunities for foreign companies (foreign investors and contractors) which are more available for the technology, qualifications, experience and capital than domestic firms
This is also a threat to the company in the future
In particular, the company is very concerned when other companies in the
same industry, due to difficulties in investing in Hanoi market and changes in urban planning policy
After the State issued the Laws, Decrees, Circulars instructions for the
construction industry and a number of policies to encourage investment in real estate sector, the legal barriers for new entrants in the construction industry are
almost completely demolished According to statistics from the Ministry of Construction and Contractors Association, within five years, the number of contractors increases by more than 12% per year (Source: Contractors Association) For new entrants, the barriers to participate in bidding are mainly
experience profile and execution capability 2.2.2.2 Rivalry among existing firms;
Currently, there are many companies operating in services business field for housing; constructing civil, industrial, transportation, irrigation works Especially areas such as Hanoi and surrounding provinces focus many large
corporations such as: VINECONEX, SUDICO, HUD These enterprises are direct competitors of the company In addition, with the international integration, there are also foreign competitors who have great potential for finance, technology and human However, the company has prepared the strategies, directions, and plans to make rational production policies, suitable organization
structure, and always being active in the market to ensure expected turnover and
profits
Trang 32-30-2.2.2.3 Customers:
Customers of the company are in different groups, they may be investors, contractors (if the company itself is a subcontractor), and consumers directly Along with the strong development of the economy, the customers’ demand is
much higher; therefore, their choices are diversified and they also require better
service quality
To create opportunities for itself, the company needs to enhance the relationships with profitable customers, making them loyal to its products
Besides, the company should diversify its products through redesigning,
marketing and coordinating the operation or application of new technologies
Real estate business operations mainly rely on bank loans with high cost of capital (interest rate from 1.3 to 1.7% per month) Therefore, the company will
suffer from a loss if sales and capital recovery are not fast enough For companies
investing in this industry, since planning the project, power of buyers is focused
to build customer service goals (high, intermediate, or ordinary) From that, to
determine the types of transactions in order to meet customers’ demand as well as
ensure profitability
2.2.2.4 Suppliers:
Because the main business operations of the Company are construction, erection, project investment and real estate, the supply of information related to
planning, project execution procedure, source of capital, etc which can be
updated rapidly and easily is the most important
On the other hand, the Company has a close relationship with many
investment owners and all levels of government, which brings a considerable
advantage in maintaining competitive edge on the market The Company also has advantage in attracting highly qualified labour force and if necessary, the
Trang 332.2.2.5 Substitutes:
Intra industrial businesses shall incessantly learn from experiences and
create construction products which have distinct difference, modern architecture
design and full capacity so as to meet the increasing demand from customers Since the construction products are made by using a large labor force while the use
of modern technology and machine is extremely limited, the demand from customers cannot be satisfied
2.2.2.6 Prospects for development of the industry:
Urbanization rate of Vietnam
Along with the socio-economic development and the increase in people’s income, the demand for living in a modern safe environment with high-class
utilities has risen rapidly Dynamic cities and socio-economic centers have become a magnet for a large amount of labor as well as foreign and domestic investors Therefore, it is estimated that the demand for accommodation is
extremely big
According to the Government’s urbanization strategy, by 2020 housing
construction will need to achieve the target of average housing area, namely
21.5 m’ per capita Thus, construction industry needs to supply types of houses satisfying the various demands of people at different income levels 5% of
urban land fund shall be used for construction of public utilities which ensures
that each person can use 3-5m” and satisfies the physical and mental needs of urban residents
Based on this trend, the demand for accommodation of Hanoi capital in the next years will be still high, which facilitates the stable and sustainable
development of the Company
With the expected boost in urbanization, it is estimated that besides the
growth of luxury apartments and houses, a boom in housing market for people at
average income level will be created in the next years
Trang 34-32-When the economy is increasingly integrated, foreign companies will penetrate into Vietnamese market together with a large number of foreign
specialists Hence, the demands for stable accommodation from these people are
expected to sharply increase in the next time
Infrastructure construction and industrial zone development:
Together with joining the WTO, Vietnamese economy is in the process of
integration with global economy Becoming a member of the WTO helped Vietnam raise the country’s status and image as an attractive investment
destination for foreign investors Foreign Investment Agency stated that in 2010,
Vietnam attracted USD18.59 billion in registered foreign direct investment (FDI)
capital (including new register and increased capital), equivalent to 82.2% in
comparison with the same period of 2009 and nearly achieving the target of
2010 Despite this, FID pouring into Vietnam still maintains encouraging figures
in the context of global economic downturn, which proves that Vietnam’s investment environment is always attractive to foreign investors With the results
achieved in 2010 and favorable domestic and international conditions in 2011, it is estimated that implemented FDI in 2011 can reach USD 11-11.5 billion, in
which foreign capital is about USD 8-8.5 billion and registered FDI in 2011 is
about USD 20 billion However until October 2011, foreign direct investment
projects have disbursed USD 9.1 billion, an increase of 1% compared to the same
period of 2010
(Source: http://fia.mpi.gov.vn/)
Together with market-oriented economic transition and global economic integration, development strategies for system of Vietnamese industrial zones are based on the comprehensive development of the economy Besides reform of administrative system and improvement of investment environment, Government
Trang 35estate, service and high-tech industries Therefore, it can be affirmed that major developments are in prospect for the industrial zone construction and investment
Assessment of the appropriateness among development orientation of the Company, orientation of the construction industry and policy of the State: Based on the above-mentioned analyzed prospects for development, it can be seen that the Company’s orientation to development in real estate and infrastructure investment is perfectly suitable for general development orientation of the industry as well as strategy of industrialization and modernization in Vietnam 2.2.3 Evaluation on opportunities and threats for Song Da 7
2.2.3.1 Opportunities and opportunity ranking:
After analyzing elements of macro-environment and industry environment, it is possible to generalize about overall opportunities for the Company based on the steps executed as follows:
Step 1: Identify opportunities for the Company:
- Decision No 76/2004/QD-TTg dated 6" May 2004 of the Prime Minister approving orientations of housing development up to 2020
- Global economic integration facilitates market expansion, cooperation with world partners as well as access to new technology and high quality products
Trang 36reøarding approval for orientation of housing development up to 2020 Economic integration facilitates companies 2 2 + +4 for 1nvestment opportunities
Based on the impact evaluation table of opportunities for the Company, we can rank opportunities in order of preference as follows:
- Rapid economic recovery and warming up trend of real estate market will generally lead to the increase again in construction and the high demand for construction products in the next years
- Decision No 76/2004/QD-TTg dated 6" May 2004 of the Prime Minister
approving orientations of housing development up to 2020
- Global economic integration facilitates market expansion, cooperation
with world partners as well as access to new technology and high quality
products
- The stock market motivated by Government’s stimulus package is
heating up again, which creates favorable condition for the Company to attract
financial resources in order to invest in developing and expanding business
2.2.3.2 Threats and threats rating:
Like opportunities, the challenge ranking and evaluation are executed as follows:
Step 1: Identify Threats for the Company
Trang 37- The competition is increasing; Construction Companies and Corporations have opportunities to boom and dominate the market
- The excess of supply over demand of construction products can take place when a big volume of construction works are invested for reconstruction
and expansion and launched to the market at the same time The rocketing rise of output may result in dumping, directly affecting selling price and reducing business efficiency
Step2: Create impact evaluation table of challenges for the Company: (Level of importance and impact on the business has the scale of 3 in accordance with the level of importance and impact of the challenges on the Company.)
Table 2.3: Impact evaluation of Threats for SD 7 Main challenges Weigh Impact on Song Da 7 Rating Total weighed score (1) (2) (3) (4) (5=2*3)
Price of fuel and energy is on
the increase, the Government tends not to control the price of
petrol and intends to privatize
electricity sector in accordance 3 3 - -9
with the roadmap Hence,
businesses are forced to
increase production costs
The competition is increasing;
Construction Companies and Corporations have
opportunities to boom and 2 3 - -6
dominate the market
Trang 38
The excess of supply over demand of construction
products can take place when a
big volume of construction 2 works are invested for
reconstruction at the same time
Based on the impact evaluation table of challenges for the Company, we can rank challenges in order of preference as follows:
- Price of fuel and energy is on the increase, the Government tends not to control the price of petrol and intends to privatize electricity sector in accordance with the roadmap Hence, businesses are forced to increase production costs
- The competition is increasing; Construction Companies and Corporations have opportunities to boom and dominate the market
- The excess of supply over demand of construction products can take place when a big volume of construction works are invested for reconstruction at the same time
Table 2.4: Summary of opportunities and threats for SD 7
OPPORTUNITIES THREATS
- Decision No 76/2004/QD-TTg dated 6" May 2004 of the Prime Minister approved orientations of housing development up to 2020
- Global economic integration facilitates market expansion, cooperation with world partners as well as access to new technology and high quality products
- Price of fuel and energy is on the increase, the Government tends not to control the price of petrol and intends to privatize electricity sector in accordance with the roadmap Hence, businesses are forced to increase production costs
- The competition 1s increasing;
Construction Companies and
Corporations have opportunities to
Trang 39
at the same time
boom and dominate the market
- The excess of supply over demand of construction products can take place when a big volume of construction
works are invested for reconstruction
2.2.3.3 Eternal factor evaluation matrix (EFE) of SONG DA 7
Based on fact-finding trip to Song Da 7, methods of investigation, direct interview with economic specialists and analysis of collected data, the research team has created an External Factor Evaluation Matrix of Song Da 7 as follows: Table 2.5: External Factor Evaluation Matrix (EFE)
No | Main External Factors Weigh Rating Mielautee Score
| Strong and stable economic growth 0.04 2 0.08
2 Vietnam’s stable politics 0.1 2ã 0.2
3 Impact of economic integration 0.06 3 0.18
Government policy-oriented housing 01 4 0.4
4 development in 2020 "
Development of science and 01 2 02
technology
6 Effects of natural condition 0.1 2 0.2
Support of Song Da construction 01 2 02
7 Corporation
§ Impact of economic recession 0.1 3 0.3
Competition between domestic and 0.1 2 0.2
9 foreign businesses
10 Impact of the increase in input price 0.1 2 0.2
Unhealthy domestic competitive 01 2 02
11 environment
Total weighted score 1 2.59
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-Comments:
Total significant mark is 2.59 while the average level is 2.5 Thus, it is clear that the ability to react to opportunities and challenges from the external environment of Song Da 7 is above average Economic recession and intense competition between businesses within an industry also have great influence on business plan of the Company
Level of the Company’s reaction to the above-mentioned threats is above average Hence, development strategies of the Company shall focus on improving its reaction ability to these threats
2.3 INTERNAL ANALYSIS:
2.3.1 Human resources:
Human beings are always the most important factor in the company With much effort, the Company’s administrators have maintained, supplemented and gradually created a strong team of employees with superior qualifications Even in hard times, leader of the Company managed to find solutions to creating job for labor Ensuring full employment and stable living condition for the Company’s employees is an important part of the Company’s development
strategy
The Company has an experienced administrative staff with high qualifications in construction In recent years, the staff rejuvenation has been paid special attention by the leader of the Company Besides, the Company frequently assigns staff to take part in some courses, offers short-term training courses and conduct proficiency tests in order to enhance staff qualification and satisfy business requirements
2.3.2 Finance